When the IMF’s point man on Greece, Poul Thomsen, rebuffed the nation’s proposal in December to unlock more bailout funding, he wound up making his job even tougher.
The Greek government’s failure then to secure an agreement with its creditors helped pave the way for its defeat in January by the anti-austerity Syriza party. Instead of negotiating with Greece’s establishment, Thomsen finds himself facing a novice group whose leaders have likened the lenders’ conditions to “fiscal waterboarding.”
Now the 60-year-old Danish economist is holding his ground against Syriza economic plans that fail to meet International Monetary Fund criteria for putting Greece’s debt on a sustainable path. And this time, the nation’s membership in the euro and the IMF’s credibility hang in the balance as Greece runs low on cash and European leaders look to the fund’s blessing before disbursing more bailout money.
The situation has Thomsen, whose thesis adviser was an architect of the euro, in the role of helping decide the currency’s fate. Thomsen has been closely involved with the Greek bailout since its inception in 2010, and often represents the fund at meetings of euro-area finance ministers, where officials from the European Commission and European Central Bank also typically attend. Those two institutions and the IMF form the so-called troika of Greek creditors.
“That deal in December was a hugely missed opportunity,” said Martin Edwards, an international-relations professor at Seton Hall University in South Orange, New Jersey, who has researched IMF lending programs. “They moved from having a moderately cooperative government to one that wasn’t going to be in their corner. This is a problem of their own devising.”
Thomsen, who almost didn’t get hired at the institution whose reputation he’s now trying to preserve, was promoted in November by Managing Director Christine Lagarde to head the IMF’s European Department from Washington.
He has been drawn to challenges throughout his career. He led the bailouts of Iceland and Portugal following the financial crisis. His resume includes postings in Russia and the former Yugoslavia. He’s also responsible for Ukraine’s $17.5 billion loan program, a delicate deal that could unravel if the nation fails to reach a debt-restructuring agreement with private creditors or the conflict with pro-Russian rebels rekindles.
His role has made him an object of scorn in Greece, where spending cuts and tax increases have sparked protests. A man was arrested in Athens in 2013 for throwing coins at Thomsen as he arrived at the finance ministry; now Thomsen has 24-hour bodyguard protection whenever he visits the nation, on the recommendation of Greek police.
“He’s developed this appetite for being shot into a firestorm,” said UniCredit Bank AG Global Chief Economist Erik Nielsen, who went to university with Thomsen and worked with him at the IMF in the late 1980s. “If you talk to him about, ‘What do you think equilibrium interest rates are,’ or, ‘What do you think potential growth is for Europe,’ he becomes less interested. But if you ask him, ‘What would you do if there’s a run on the banks,’ then he comes alive.”
Hanging over the IMF is its 2010 decision to waive a requirement that Greece’s debt be sustainable. After the shock of the Lehman Brothers Holdings Inc. collapse in 2008, fund officials were worried a Greek default would have severe spillover effects on the global economy. The IMF pledged $38 billion to Greece, a record relative to a nation’s shares in the institution.
Yet the IMF’s efforts to make Greece more competitive fell flat, and the country plunged into a deep recession. Massive public spending cuts prescribed by the fund stoked public resentment, an echo of the opposition to austerity unleashed in countries such as Indonesia during the Asian financial crisis of the late 1990s.
A former IMF colleague of Thomsen’s, Ashoka Mody, last month in a Bloomberg View column called for the fund to “recognize its responsibility for the country’s predicament” and forgive much of Greece’s debt.
There’s little sign that the IMF and Thomsen might bend the rules or cross their red lines now. While some issues such as short-term budget targets may be negotiable, the fund’s position is that any Greek agreement must bring debt down to sustainable levels and include concrete commitment to reforms, especially cuts to public pensions.
“We are open to new ideas and different ways to achieve a country’s economic goals. We are a pragmatic institution,” Thomsen said in a statement to Bloomberg News. “But we also need to be mindful of economic realities. At the end of the day it needs to add up. And we need to ensure that we treat our member states equally, that we apply our rules uniformly.”
To disburse any of the remaining $19 billion on the IMF’s bailout, the fund needs to make a fresh assessment of Greece’s debt. That task has been complicated by the reluctance of Greek officials to provide up-to-date figures.
Starting with a $334 million debt payment on June 5, Greece owes the fund $2.4 billion in the next three months, along with what Bloomberg Intelligence estimates is about $7.4 billion to the ECB on maturing bonds. If the nation misses an IMF payment, it will join a club of countries in arrears: Sudan, Somalia and Zimbabwe.
Thomsen said at an April press briefing that while the IMF doesn’t expect a Greek exit from the euro, Europe is in a stronger position than before to withstand such an outcome.
The latest developments give little indication the standoff will end. After a Greek official said the country will start drafting an accord at a meeting taking place Wednesday and Prime Minister Alexis Tsipras told reporters that a solution is close, the European Commission responded to say a deal is not imminent and that a lot of work remains to be done.
The Greek official, who asked not to be identified because the talks are private, said there are still disagreements with creditors and that the IMF was a main obstacle to an agreement. Angela Gaviria, an IMF spokeswoman in Washington, declined to comment.
Thomsen was born in Aabenraa, Denmark, a town of about 16,000 near the German border that was once a shipbuilding hub. His father was a grocer; his mother stayed home to raise him and his five brothers and sisters.
At the University of Copenhagen, Thomsen’s thesis adviser Niels Thygesen recalled his former economics student as quiet, intense and an extremely hard worker. When Thomsen had difficulty getting an IMF job because he lacked a Ph.D., Thygesen recommended the fund give him a chance.
“I would have expected him to be in a sense an average IMF economist writing reports,” said Thygesen, 80, who helped design the euro system.
Instead, Thomsen threw himself into the nitty-gritty operations of IMF missions -- visiting countries to assess their economic policies or progress in meeting loan conditions. He became so immersed in the job that he dropped plans to return to Denmark for a Ph.D.
Thomsen’s stamina is the stuff of legend, said Jesper Berg, a former university and IMF peer of Thomsen’s. He took on back-to-back missions, which can last five weeks and require long days of work. Coworkers would catch him at his desk late at night, nodding off, said Berg, now a managing director at Nykredit Bank A/S in Copenhagen.
“The negotiations in which Poul has been involved in Europe have been intense,” Berg said. “But that’s his preferred habitat.”
Now Thomsen’s career is culminating in the international showdown over Greece.
In the December episode, Thomsen was representing the IMF at a Brussels meeting of euro-area finance ministers over Greece’s proposal to unlock 1.8 billion euros in funding and give the country new credit lines with looser conditions. With Syriza leading in the polls, the government of Prime Minister Antonis Samaras saw a new deal as the only way to retain power.
EU Economic Commissioner Pierre Moscovici expressed support for moving ahead with the review, according to a person familiar with the matter. But ECB President Mario Draghi said Greece hadn’t gone far enough to cut spending in areas such as public pensions, said another person who attended the meeting, who asked not to be identified because the discussions weren’t public.
When the floor turned to Thomsen, his position was clear: I agree with Mario. In Thomsen’s view, the Samaras government hadn’t done nearly enough to implement the changes it had promised. His view prevailed, and seven weeks later, Syriza took power.
“It was the right decision. It had bad political implications for Greece at the time, but we’re still early in that game,” said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington. “I have no doubt Syriza will cave in the end.”